Sources of German Unemployment: Evidence from a Structural VAR Model

This paper analyzes the dynamic effects of different macroeconomic shocks on unemployment in Germany. In a first step, a cointegration analysis of productiv- ity, prices, real wages, employment, and the unemployment rate reveals two long run relationships,interpreted as a labor demand and a wage setting scheme. Secondly, a structural VAR model is identified using the restrictions suggested by a single macroeconomic model. The impulse response analysis and the forecast error variance decomposition display that price, demand, and labor supply shocks affect unemployment signifficantly in the short / medium run. Interestingly, however, wage and technology shocks do not seem to play a dominant role.

Linzert, Tobias (2001), Sources of German Unemployment: Evidence from a Structural VAR Model, ZEW Discussion Paper No. 01-41, Mannheim.